BEIJING (Reuters) - Critics of China’s foreign exchange regime have shifted their focus from the value of the yuan to the mechanism in which its day-to-day level is set, the head of the OECD said on Tuesday, a fresh sign that currency may be near its equilibrium level.
“The emphasis is no longer on the question of the value of the currency,” Angel Gurria, secretary general of the Organization of Cooperation and Development (OECD), the economic policy think tank of the world’s richest nations, told Reuters.
“The question is not about fixing a particular level and saying ‘now it is ok’, but about the system through which the value of the currency is fixed every day.”
Gurria’s comments come 24 hours after China’s Premier Wen Jiabao gave fresh impetus to market talk that Beijing is getting ready to take another major step forward in the liberalization of the country’s tightly controlled currency management system.
Wen said on Monday it was inevitable that the yuan would become a freely convertible part of the global trading system, with timing being a key constraint that should not be forced.
Recent comments by Wen, central bank governor Zhou Xiaochuan and pricing activity in China’s tightly controlled onshore yuan market have intensified investor speculation that Beijing is getting ready to announce a change to the currency’s daily 0.5 percent trading band against the dollar.
Gurria said criticism of China’s currency system had clearly shifted.
“The question is not about the currency, at least not the monothematic discussions we had last year or two years ago,” Gurria said in an interview with Reuters Television.
Gurria was in Beijing to participate in a forum of top Chinese policymakers, academics and international business leaders over the weekend.
Lawmakers in the United States, Europe and elsewhere have been vocal critics of China’s currency management system, which they say keeps the yuan artificially weak to unfairly assist the country’s exporters.
U.S. President Barack Obama is set to sign a bill into law to allow duties to be imposed on subsidized goods from China and Vietnam, which the White House says will protect American jobs.
Many politicians in Washington say the yuan remains at least 20 percent undervalued.
China rejects the criticism as unfounded, citing an appreciation of around 30 percent in the value of the yuan against the dollar since a 2005 landmark reform, when its peg to the greenback was broken.
Gurria said the issue of the level of the currency had clearly taken a backseat relative to issues of trade, intellectual property rights, investment rules and the ability of foreign firms to participate in competitive bidding for public and some private contracts.
But he said getting the currency system right was crucial and that it would take time.
“If you move towards a more freely floating, a more fully convertible (currency), it doesn’t happen all at once. If you move towards a system like that then you will have increasingly less distortions and you will have increasingly less tensions deriving from the value of the currency itself,” Gurria said.
China, the world’s biggest exporting nation and the second-largest importer, has long wanted to break the dollar’s dominance as the principal global unit of cross-border trade, in part to battle internal inflation risks and also to enhance Beijing’s influence on the international financial system.
On Sunday, International Monetary Fund managing director Christine Lagarde said the yuan could become a reserve currency in future if the country undertook further economic reform.
Although Beijing has increased the use of the yuan to settle cross border trade, undertaking a series of reforms in recent years to that end, yuan settlement was only about $300 billion in 2011, while Chinese exports were worth about $1.9 trillion.
Gurria said that having China’s yuan as part of an international system of freely convertible currencies was crucial to smoothing flows in international trade.
“The trade system and the financial system which feeds the trade system and the investment flows can flow better, the system can work better in general,” he said, adding that the top priority for global policymakers was revitalizing global growth.
“Using trade as a lever to get the world economy back on its feet is almost a foregone conclusion. We have to do it. We have to do it better. And the interplay of the currencies in that scenario is critical.”
Editing by Kim Coghill